Sun Capital Decision Continues to Rile US Private Equity Industry

摘要

The 'Sun Capital' decision handed down last year by the United States Court of Appeals for the First Circuit continues to garner significant attention from the US private equity industry. Despite widespread industry views to the contrary, the Court held that a private equity fund could constitute a 'trade or business' under US statutory pension law and therefore could be held financially responsible for the US pension obligations of one of its portfolio companies. The narrow ruling of the Sun Capital case would be sufficient in itself to cause the various stakeholders in the private equity industry, including non-US investors, to take note. However, there continues to be considerable uncertainty regarding the extent that the holding and rationale of the case will be applied in the future (i.e. whether the decision will be followed, extended and/or modified by other courts). As in many business contexts, uncertainty is bad for business, and uncertainty surrounding Sun Capital will have serious ramifications (from both a legal and practical perspective) for how such investment funds conduct their business in the future.